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To Chinese firms U.S. is a bargain

States aggressively woo manufacturers. Lower electricity and land costs can offset a higher labor tab.

May 05, 2008|Don Lee | Times Staff Writer

DONGGUAN, CHINA — Liu Keli couldn't tell you much about South Carolina, not even where it is in the United States. It's as obscure to him as his home region, Shanxi province, is to most Americans.

But Liu is investing $10 million in the Palmetto State, building a printing-plate factory that will open this fall and hire 120 workers. His main aim is to tap the large American market, but when his finance staff penciled out the costs, he was stunned to learn how they compared with those in China.

Liu spent about $500,000 for seven acres in Spartanburg -- less than one-fourth what it would cost to buy the same amount of land in Dongguan, a city in southeast China where he runs three plants. U.S. electricity rates are about 75% lower, and in South Carolina, Liu doesn't have to put up with frequent blackouts.

About the only major thing that's more expensive in Spartanburg is labor. Liu is looking to offer $12 to $13 an hour there, versus about $2 an hour in Dongguan, not including room and board. But Liu expects to offset some of the higher labor costs with a payroll tax credit of $1,500 per employee from South Carolina.

"I was surprised," said the 63-year-old president of Shanxi Yuncheng Plate-Making Group. "The gap's not as large as I thought."

Liu is part of a growing wave of Chinese entrepreneurs expanding into the U.S. From Spartanburg to Los Angeles they are building factories, buying companies and investing in business and real estate.

Individually, these deals pale next to high-profile investments such as the $5-billion stake China's sovereign wealth fund took in Morgan Stanley last year, or state-owned oil giant CNOOC Ltd.'s $18.5-billion bid to acquire El Segundo-based Unocal Corp. in 2005.

But unlike the suspicion or uproar those moves generated -- CNOOC withdrew its offer amid U.S. political pressure, and the Bush administration and other governments have pushed for a "code of conduct" for sovereign wealth funds -- private Chinese businesses such as Shanxi Yuncheng are being wooed by states hungry for investment and jobs.

Last month, Wyoming's governor toured firms in China's coal-mining country. Georgia's leader brought a team of 40 on a mission to boost trade and attract investment, and Alabama's governor paid a visit too.

"It's like a land grab," quipped James Rice, Tyson Foods' China manager and a board member of the American Chamber of Commerce in Shanghai, who has attended some of these states' functions in China.

A bit of apprehension

Many Chinese entrepreneurs remain wary of entering the U.S., uncertain about restrictive visa rules, language and cultural barriers and the political environment. Recent tensions related to Tibet and the Olympic torch relay have spurred calls in China to boycott Western companies. But no one says that's slowing the march of Chinese companies into the world's biggest economy.

"They don't want to miss this opportunity to bottom-fish in the U.S.," said Mei Xinyu, an economist at China's Ministry of Commerce, referring to the depressed asset prices in a sluggish American economy.

Flush with cash, many Chinese companies want to compete globally. Others feel they've hit a wall in the domestic market and need to go out to expand sales. And the Chinese government is urging them on by loosening previously cumbersome restrictions, in part to help Beijing reduce a lopsided trade balance with the U.S. and make the most of its massive foreign reserves.

"At seminars and talks, government authorities are saying, 'You're a capitalist; you should be going out,' " said Fred Hong, a Pasadena lawyer who has worked in Guangzhou for 15 years advising Chinese companies.

One of Hong's clients, a Wenzhou man who operates two printing factories in China, recently signed a deal to spend $1 million to buy a 60-worker plant in the City of Industry that makes magnetic cards. Hong said the man's factories had produced strong profit in the last several years, leaving him with a pot of cash. With the dollar having lost nearly 10% of its value against the Chinese currency in the last 12 months, the yuan can go a lot further in the U.S.

Changing direction

For years, investment between the U.S. and China flowed one way, with American firms spending billions in the Asian nation. But the Beijing government's $5-billion stake in Morgan Stanley and $3-billion investment in the private equity firm Blackstone Group brought China's overall investments in U.S. firms to $9.8 billion in 2007, up from $36 million the year before, according to Thomson Financial.

By comparison, U.S. investment in China was $2.6 billion last year, down from $3 billion in 2006, said China's Ministry of Commerce.

But many Chinese entrepreneurs prefer to keep a low profile, and experts say those figures don't include a lot of investment activity happening under the official radar.

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